How Solar Leases Mask High Prices

I consider myself among the lucky. I had the good fortune to land a job in solar sales way back in 2007. Back then, times were simpler. The majority of my customers paid for their systems with cash or HELOCS (home equity lines of credit). PPAs (power purchase agreements) and leases were the realm of multi-megawatt commercial and utility installations and nothing of the sort was available for residential consumers.

In the “earlier” days of solar savvy customers compared solar purchases by comparing price per watt. Price per what?

Price Per Watt
Price per watt simply tells you how many dollars you are spending to buy a “watt” of solar power. Think of it this way: if your home requires a 6 kilowatt (KW) solar power system (6000 watts) and you pay $42,000 to have one installed, you’ve paid $7/watt. If on the other hand, if you spent $12/watt the same system would’ve cost you a whopping $72,000! Yes, the same system! Today’s solar leasing products allow some dealers to mask dramatic price differences, such as these, behind “low monthly payments.”

The chart here illustrates the range of prices paid by customers in Southern California Edison (SCE) territory according to CSI (California Solar Initiative). This data was compiled by a third party, RunOnSun in Pasadena, CA.

In 2007 charts like this weren’t publicly available, so homeowners really had no way to verify whether they were getting a bad, good, or great deal on a solar system unless they compared 4 to 6 bids. Still price/watt held an important place in the conversation between solar buyer and solar dealer. By 2009, “What’s your price/watt?” was often one of the first questions my customers would ask me. By then, price/watt was solar’s APR (annual percentage rate used to compare bank loans). It’s how you knew you were getting a good deal after you settled on equipment and installation.

Today, the subject of price/watt has all but vanished from the dialog. Why? The advent of now readily available leasing and residential PPA programs allow for the selling of solar systems using ‘savings per month’ in place of price per watt. This approach allows unscrupulous dealers to mask high, some might say, outrageous prices from their customers. Does it matter what your paying if you’re saving money every month? Of course it does.

Don’t get me wrong. There are many reputable dealers who help their customers to go solar through leasing and PPAs, and there’s nothing inherently wrong with either choice, but when dealers mask high prices in leases, consumers end up holding the bag.

This type of thing may have already happened to you if you’ve ever leased a car. Savvy buyers know to negotiate the price of the car before they choose how to finance it and then check the contract numbers carefully to make sure there’s nothing funny going on. Naïve buyers walk into a car dealership and fall for the “What kinda payment are you looking for on this baby?” line. If that’s you, keep reading.

Today, we see the similar tactics infiltrating the solar industry. You go online, get a quote, and you get excited because the solar company you contacted can save you $50/month on your electric bill with their exciting new lease! So you call them up, they dispatch a salesman, and just like that you’ve gone solar. Does it really matter what you paid? After all, you’re saving $50/month, right?

Let’s say the system that saves you $50 cost you $12/watt. If you leased a 6KW system you’re on the hook for $72,000. That same system for $6/watt would’ve saved you $100/month and cost $36,000. Big difference! Which system would you lease? The savvy buyer would’ve asked how much the system cost; how much power they were getting; and compared multiple bids. Such a buyer would by enjoying both significantly higher savings and a much faster ROI (if he put money down).

Questions for Your Solar Contractor
As I mentioned, price/watt is solar’s APR. When considering solar for your home, you need to ask your solar contractor two questions:

What is the cost of the system?

How many watts am I getting for that cost?

After you have your answer, you take the cost; divide by watts; and just like that you’ve mastered the art of price/watt and are a master solar shopper (well almost, look for my upcoming article Solar Lease Red Flags to become an even savvier solar shopper).

With price/watt in hand, you now know whether you’re getting a good value or being taken to the cleaners. Savings per month is a great way to determine the impact solar will have on your bank account, but a terrible way to shop for it. Price per watt is the great equalizer. Now that you have the power of price/watt to guide your decision, you can shop more confidently for your new home solar system.